Wall Street cheered President Obama’s fiscal compromise with Republicans, not just the extension of the existing Bush-era tax cuts, but the addition of a payroll tax cut in particular as that measure may signal an even bigger shift on the part of the White House toward supply-side economics.

“The payroll tax cut was a surprise to most and perhaps a sign that the administration is willing to try the other side's potion to get job growth back in the U.S.,” said Bill O’Donnell and John Briggs, RBS bond strategists, in a note to clients. “There has been an endless debate among economists over the differences between private versus public sector multipliers. Looking at the just-announced tax compromise, it appears as if the markets will now get to see first hand what the debate's all about. The mid-term elections have apparently driven a shift away from public sector support (stimulus) to letting the private sector take a turn at the wheel with a heavier wallet.”

President Obama’s deal keeps the lower personal income, dividend and capital gains rates enacted under President George W. Bush the same for at least the next two years. What’s new is a 2 percent reduction in social security payroll taxes for one year.

The deal represents “a significantly more positive fiscal outcome for 2011 than we and most others have been expecting, including a one year reduction in the payroll tax,” said Jan Hatzius, chief U.S. economist at Goldman Sachs, in a note. “This proposal would add $185 billion in stimulus in 2011 beyond what we have been assuming, not including the corporate tax provisions.”

Stocks flirted with new highs for the year following the announcement as investors bet this fiscal stimulus, coupled with the Federal Reserve Chairman’s monetary stimulus, will foster a one, two punch for the economic recovery next year. Stocks most linked to economic growth, including industrials and technology shares, led the gains.

If Obama is ‘going Clinton’ then it is hugely constructive for the economy,” said Steve Cortes, founder of Veracruz LLC. “Once it was evident that Clinton would move to center and play ball with GOP, S&P soared in 1995 after 1994 mid-terms.”

Goldman also points out that Obama proposed a 35 percent estate tax rate, with a $5 million exemption that is “more generous than the policy many Democrats supported and is likely intended to attract support from Republicans and centrist Democrats.”

“Obama and his advisors found religion with the rise in unemployment announcement,” said Sean Egan, founder of Egan-Jones Ratings Company and one of the first to warn about the credit crisis that got us in this mess. “Also more quantitative easing is politically less palatable in the current environment.”

In speeches recently, Bernanke had called for a strong “fiscal” response. It couldn’t come at a better time for the Fed Chairman, who has been under fire for announcing a second round of Treasury purchases to keep interest rates low. The full purchase of the $600 billion the Fed is planning to buy may not even be necessary if this stimulus takes hold, investors said.

Does the Obama tax deal make you more bullish about stocks in 2011?
Buy ...fiscal and monetary firing away
Sell ...we can’t afford this

Vote to see results
President Obama’s first attempt at economic stimulus at the beginning of 2009 was largely Keynesian in nature and was forced through Congress. It contained minor tax cuts but was heavily loaded toward spending on infrastructure and education and extending unemployment benefits.

To be sure, this is new compromise is not a done deal yet. Both party leaders now need to discuss the finer details with their members and then the Senate will likely vote first, followed by the House. During these further discussions, you could have some strong protests from Democrats. The payroll tax cut, in particular, could become a target of an income limit in the final bill, according to FBR Capital Markets.

And some investors feel like President Obama is just playing politics and digging an even deeper hole for the country by switching to another kind of economic approach.

“The payroll tax cut will hurt the economy as the lost revenue will simply be borrowed instead,” said Peter Schiff, President of Euro Pacific Capital. “The additional borrowing to finance larger deficits will hurt the economy more then the offsetting benefit of lower taxes.”

I dont shop at Whole Foods. I belong to a food coop where we work some hours in
exchange for very healthy (85% organic) and inexpensive food.
I guess its just goes to show that this progressive is frugal and you overspend.

I repeat:Wall Street cheers while S&L spouts old talking points that are so far from the truth that one understands just how effective Fox news is at destroying its viewers brain cells.

Go back to raising your family and turn off Fox.
Unless of course you are going to watch the Simpsons.

I dont shop at Whole Foods. I belong to a food coop where we work some hours in
exchange for very healthy (85% organic) and inexpensive food.
I guess its just goes to show that this progressive is frugal and you overspend.

I repeat:Wall Street cheers while S&L spouts old talking points that are so far from the truth that one understands just how effective Fox news is at destroying its viewers brain cells.

Go back to raising your family and turn off Fox.
Unless of course you are going to watch the Simpsons.

Food Coop - nice for you. For once, maybe I should join you. But what would they think of my "liberals are mean" bumper sticker?

**** you and Fox News.

I'd love to hear your take on who should employ the unemployed so that the income gap can be reduced and unemployement reduced. The post is sitting there.....lonely.

Wealthiest .0000001% Hail Tax Deal

Billionaires Praise Obama Move

GENEVA (The Borowitz Report) - President Obama’s deal to extend the Bush tax cuts for the rich drew rave reviews today from the wealthiest .0000001% of Americans, who pronounced the deal “a total home run.”

“When we first heard about the deal, we were like, this is too good to be true,” said multibillionaire Thurston Howell IV, a spokesman for the richest .0000001%. “But when our butlers read the plan aloud to us during the cocktail hour, we were incredibly stoked.”

The 29 plutocrats who make up the nation’s wealthiest .0000001% were at their annual meeting at Mr. Howell’s villa in Geneva, Switzerland when news of the President’s deal was first released.

“Bill Gates and Warren Buffett were the first to hear about it, and then the news just kind of trickled down, if I may use a favorite phrase of ours,” Mr. Howell said.

“The President deserves credit for recognizing what the wealthiest .0000001% have known for years,” he added. “Our cost of living has soared astronomically, especially when you consider how expensive it’s gotten to control the outcome of elections.”

In response to critics who have said that Mr. Obama’s decision to extend the tax cuts represents a change in his position, Mr. Howell said, “If I may coin a phrase, that's change I can believe in.”